Each trader must know how to read a Forex chart, regardless of whether he considers himself a “chartist”, whether he uses technical analysis, and so on. This is due to the fact that the classic techniques of graphical analysis, which are not at all difficult to master, provide significant advantages in trading, allowing you to confidently increase your deposit step by step.
Below are the main principles that will help you understand how to read Forex charts correctly. With their help, it will be easier for beginners to get used to it, allowing them to avoid many of the pitfalls that dash traders’ hopes.
A basic level of
Before we continue, we need to remember that the main instruments of Forex trading are currency pairs. For example, GBP/USD. A currency pair is written in the form of a ratio, which means that the value of the first, that is, the pound, is divided by the price of the second - in in this case dollar. Accordingly, if its rate is 1.4000, then the trader understands that for 1 pound you need to pay 1.4 US dollars.
Thus, buying GBP/USD with the 1st trading lot will mean that the trader bought 100 thousand pounds sterling, paying for them in US dollars. On the price chart, an increase will mean that more dollars are needed to buy the pound and, conversely, a fall will indicate a depreciation of the British currency, but only in relation to the US dollar. These are the simplest basics, and now let's move on to the main principles and learn how to read asset charts in Forex.
Where does the profit come from?
The first principle will be useful for beginners; experienced traders may skip it. Every currency speculator must understand that when buying a currency pair, he expects it to rise on the price chart, which will allow him to receive his income from trading operation on Forex. That is, in this case, the trader needs the first currency in the pair to strengthen relative to the second.
If a trader enters into a short transaction, that is, sells a currency pair, then he expects the price of the first currency to fall compared to the second, which is reflected in the Forex chart by a decrease in prices.
Period
Before reading Forex charts correctly, you need to understand the meaning of time intervals or time frames, comparing them with the conditions for entering a trade. Many beginners do not take into account the fact that each strategy involves working with a certain time period of the chart, during which it will show the best result. But, what is even more common, a trading system can combine work with several Forex charts. For example, to determine the general trend or search for certain formations, a chart with a 4-hour time frame can be used, while the direct search for an entry point will occur on a chart with a 5-minute time frame.
If this approach is used, then you can separately configure each indicator so that it, with the appropriate parameters, is displayed strictly on the timeframe selected for it. To do this, when adding an indicator, you need to uncheck those time intervals in the input parameters for which the indicator should not be displayed on the price chart.
Price on the chart
Next, you need to remember that at any given time all assets have two Forex prices, read the charts correctly and take into account that there is a bid and an ask, that is, the supply and demand prices. For example, the supply price for the pound is now 1.4002, and the demand price is 1.4000. That is, if a trader wants to sell at the market, he can do this at a higher price - 1.4002. If he wants to buy, then at a cheaper price - 1.4000. The difference between these prices in points is the spread, which can be fixed or floating. In the latter case, the price between supply and demand can vary greatly and sometimes this difference reaches tens of points. Naturally, in this case, the trader should clearly see both prices on the chart in order to understand under what conditions he will make a transaction.
Time in terminal
To read a Forex chart and understand what it shows, you also need to take into account the time that the terminal displays. To do this, go to the pages brokerage company who has an account open, and clarify this point or pay attention to the time at the bottom of the chart and compare it with yours. This is important, since the daily candlestick may differ from one broker to another based on the time at which it closes.
This also matters when publishing. economic indicators. You should always carefully check which time zone you are in and which time zone the news is displayed for. Since many beginners simply rely on the time in the terminal, sometimes they miss important news, wait for it at the wrong moment, or then track the market reaction to it on the Forex chart at a time other than the time at which it actually came out.
Determining a trend
Concluding the topic of how to read Forex charts, you should pay attention to the fundamental rule of determining the trend, which passes by most beginners who prefer to focus on inaccurate indicators. Every successful trader When you look at the chart, you immediately see whether there is a trend, whether it is ready to continue, and how strong it is. To do this, you should take the last 2 minimums or maximums that are visible to the naked eye. If they consistently increase, then the trend is upward; if they decrease, then the trend is downward. If none of the conditions are met, then we can confidently assume that prices are moving sideways, after which the trend may continue or change.
Greetings, readers of the trading blog. Reading a candlestick chart is a bit like reading a book. When we see a book with an interesting table of contents, we want to open it to the first page and see what chapters are included in it. If interest in it remains, then we move on to reading the text. The same goes for reading candlestick charts. Read the explanation further in the article.a
This is the graphic pattern you are looking for. The daily chart here acts as a “big canvas” on which the search is carried out.
Here's an example:
Not bad. Intriguing. The strong resistance level at $33 has been broken, and the price has consolidated quite high. The intersection of moving averages indicates a change in trend direction.
Chapters
This is the same chart just a few days later. A good setup for opening a long position. The price rolled back to previous level resistance and this is the first pullback after a trend change and after a breakout of an important level. The intrigue is growing. Will the price strengthen and reverse into the third? Elliot wave?
Great. But there is one component missing...
Text
Candles on a chart are like words in a book. They show who wins the battle between bulls and bears. Look at the continuation of our promotion chart:
Four bearish candles in a row and suddenly a bullish one appears. Moreover, its lower shadow falls far beyond the resistance level, but the closing occurs above it. This is a good sign that the resistance level may turn into support and buyers will prevail over sellers.
Most new traders don't look at candlestick charts this way.
They focus solely on the "table of contents". Or they get too attached to the “text”. It seems that they suffer from tunnel vision, which gives them the ability to concentrate only on one part of the graph.
I'm sure every trader goes through moments like this. You need to learn to perceive the chart as a whole. The more evidence you find on it that you are right, the better.
For example, on the stock chart discussed in this article, we confirmed the correctness of our judgment about the continuation of the upward trend and the resistance level, which then became a support level. And the intersection of moving averages. And candlestick analysis (of course, ideally it would be if a “hammer” or “shooting star” was formed).
Every candlestick chart shows you its story. It's up to you to read it or not. But, if you have already taken it, then pay attention to all its components. Trading Blog thanks you for your attention. Be successful!
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Learning the basic skills needed to trade Forex, such as reading charts, is extremely important for a trader. This is because once you add this vital skill to your knowledge, it will be much easier when it comes time to learn and practice real forex trading.
You can't do without the basics
First, let's remember the basics of forex trading, because they are directly related to reading forex charts.
Every currency pair is always quoted in the same way. For example, the EUR/USD currency pair has a base currency of the euro - EUR and a minor currency of the dollar, and not vice versa. Therefore, the EUR/USD chart shows that the current price fluctuation is approximately 1.2155, which means that 1 euro can buy approximately 1.2155 US dollars.
And your trade size (notional value) is the amount of the base currency you are trading. In this example, if you want to buy 100,000 EURUSD, you buy 100,000 euros.
5 Basic Rules for Reading Forex Charts
1. If you buy a currency pair, that is, when you borrow, realize that you are expecting this currency pair to go up on the chart in order to make a profit on the trade. That is, you want the base currency to strengthen relative to the minor currency.
On the other hand, if you sell a currency pair from a short position, then you need the currency pair to go down on the chart to make a profit on the trade. So you want the base currency to weaken against the minor currency. So far everything is quite simple.
2. Always check the displayed time period. Many trading systems use different time frames to determine the entry point of a trade. For example, a system might use a four-hour or thirty-minute chart to determine the general direction of a currency pair using indicators such as , momentum or support and resistance lines, and then a five-minute chart to look for a rise after a temporary decline to determine the actual entry.
Therefore, you need to make sure that the graph you are considering has correct time frame for analysis. The best way to do this is to set the necessary time frames for the chart and indicators for the system in accordance with which you trade, in order to save and then reuse these settings.
3. Most forex charts display the bid price, not the ask price.. Remember that the price is always set with a bid and an ask (offer). For example, the current price of EURUSD could be 1.2055 bid and 1.2058 ask (or offer). When you buy, you do so at the ask price, which is the higher of the two spread prices, and when you sell, you do so at the bid price, which is the lower of the two prices.
If you are using a chart to determine entry and exit points, remember that when you place a sell order, when the price on the chart is 1.330, this is the price at which you will sell if there is no slippage.
On the other hand, you place a buy order when the price on the chart is the same, then you are actually buying at 1.3333. The trading system will often determine whether your orders will be placed simply according to the price on the chart, or whether you will need to add a buffer when buying or selling.
It should also be noted that on many platforms, when you place an order (to buy if the price rises relative to a certain price, or to sell if the price falls relative to a certain price), you can select either a “stop on bid” or “stop on offer” "
4. Remember that the times indicated at the bottom of the forex charts refer to specific time zones, for which these charts were built, for example, GMT, New York time or others.
It can be handy to have a world time clock on hand so you can convert time between different time zones. This is especially important if you are trading in line with economic announcement releases.
You will need to convert the release time to your local time and chart time in order to know when the announcement will occur and therefore when you need to trade.
5. Finally, check does the time on your forex chart correspond to the opening of the candle or the closing of the candle. Your charting program may differ from other programs in this way.
If you want to trade major economic announcements, either by entering a trade based on changes following such announcements, or exiting a trade before an announcement to avoid getting knocked out in the process, then you need to be precise (to the minute!) as such transactions are made in accordance with what happens in the first minute after the announcement, and not a candle later!
You now have 5 key chart reading tips that will help you avoid common mistakes that many new forex traders make when reading charts. They will help you speed up the process of selecting a charting software package and trading systems that you want to use for Forex trading!
The basis of all the basics for making a forecast on the stock exchange is the price chart. With its help you can find out who is in this moment stronger, buyers or sellers. Various combinations and chart movements make it possible to predict the most likely price behavior in the future, which provides an excellent chance to make money!
Reading a stock chart is a basic and essential skill needed to conduct good market analysis and successful trading further. Just as in reading, in order to read a book, you need to know the letters, so in trading, in order to learn how to read charts on the stock exchange, you need to know the basics. Let's talk about them in this article. Price chart or chart ( from English price chart), displays the price change by financial instrument over time. This allows you to visually assess the dynamics of movement and make a forecast.
There are graphs different types, but we will focus on the most popular ones that traders use and which are available in every trading terminal.
Main types of price chart display:
- line graph
- Japanese candles
Line graph
Displaying prices in the form of a line graph is the simplest thing you can think of. It looks like this:
Linear display of price chart
The timeline is displayed at the bottom, and the price is displayed vertically on the right. A line chart is built based on closing data each period ( it will be clearer about the period when analyzing the graph in the form Japanese candles ).
This method of displaying prices was invented in Japan in the 17th century by traders on the rice exchange, and has since become widely known throughout the world. The Japanese candlestick chart is perhaps the most popular, informative and convenient for trading. It looks like this:
Thanks to each candle, you can find out the following price parameters:
- opening price
- closing price
- minimum price per unit of time
- maximum price per unit of time
Each candle represents the price fluctuation over one time period that the trader selects. Those. one candle, for example, can display all price movements for 5 minutes, an hour, a day, etc.
As one period, for example an hour, passes, the next candle begins to form, the formation time of which will also take one hour. The time period (timeframe) is set by the trader in the settings of the exchange terminal.
Schematic representation of Japanese candles
All parameters of candles have their generally accepted designations in English.
- Opening - Open ( O)
- Closing - Close ( C)
- Maximum - High ( H)
- Minimum - Low ( L)
A white candle indicates growth over a certain period of time, and a black candle indicates a fall. The colors of the candles can be set at your discretion in the terminal settings.
Data OHLC candles are displayed when you hover your mouse over them. This is how these options are displayed in the most popular terminal
Because Since price fluctuations are chaotic, candles come in completely different types. For example, candles can have no shadows, or when the high is the opening price and the low is the closing price. Or the opening and closing prices may be equal, etc.
By looking at the candle, you can understand how the trading took place during a given period of time, and who, in the end, took the upper hand, sellers or buyers. Also, the mood of market participants is clearly visible: how wide the range of the candle is, and how cautious players are when the range is small. This is clearly visible before the release of some important news, when the market freezes in anticipation, drawing candles with small ranges. Traders still talk about such a market that it stands still.
Let us show you an excellent example where, thanks to candles, activity and reaction to news are clearly visible:
While awaiting the speech of the head of the ECB, the price moved in a small corridor. As the performance began, activity increased sharply and the price dropped. This happens all the time at the exit. Therefore, at such moments you need to be extremely careful.
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Quite often, thanks to the Japanese candlestick chart, you can detect reversals on the stock exchange in advance.
Notice how long the shadows of the candles are in relation to the body. This is often a harbinger of price movement in the opposite direction.
There are various combinations consisting of one or even several candles, with the help of which you can predict a market reversal or a strengthening of the previous trend.
Bar chart
Another type of price display, not as popular as Japanese candlesticks, but used by traders, mainly in the West. Looks like that:
There is some similarity with candles, but the price is displayed in the form of “columns” with “serifs” on the right and left.
- Left notch - opening price - Open (O)
- The notch on the right is the closing price – Close (C)
- The remaining data (maximum and minimum) are displayed exactly like Japanese candlesticks.
Analysis and forecasting are carried out in the same way as is done with Japanese candlesticks. Therefore, we will not repeat the explanations. Let's better discuss the nuances of all types of chart displays that we have discussed.
Pros and cons of a line chart, Japanese candlesticks and bars
Let's display the pros and cons of the graphs in the table
| pros | Minuses | |
| Linear |
|
Almost no information content |
|
A little "visual noise". The chart may be difficult to read for beginners. But with experience it goes away completely | |
|
It is difficult to immediately determine whether the price is rising or falling in a selected period of time, as can be done with Japanese candlesticks |
That’s probably all we wanted to tell you about how to read stock exchange charts. If you have any questions, welcome to the comments! We will be happy to answer you.
Happy trading!
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